Ever since Iran and America got embroiled in war, both the Indian rupee and the market started falling. One of the main reasons behind this was that foreign investors are rapidly withdrawing money from India. There is a lot of selling by FIIs. But what RBI has released now is pointing towards a pleasant pattern. In the month of April, foreign direct investment (FDI) coming into India was 6.6 billion dollars more than the investment going out of the country. Which is at the high of last 5 years. At the same time, a record increase of 17 percent was recorded in some FDI compared to last year. Let us try to understand in this news how important is FDI for the economy of a country? What has been the pattern in this regard in foreign countries and most importantly, what major steps has the Indian Central Bank taken recently to bring in money from outside?
Before moving ahead, one thing needs to be clear that there is a slight difference between FIIs and FDI among foreign investors. What is inside is that what FIIs are, they invest money in stock market and mutual funds, bonds and FDI investment is done in physical form. This means that they invest in companies and factories. However, both types of investments strengthen the economy in most cases. Now regarding FDI investment, its data has been continuously increasing in the last two years. It means that the millionaires and billionaire investors from outside have faith in India’s infrastructure and consumption, that is why they are investing money indiscriminately. This year, on year-on-year basis, the investment which has increased by 17 percent in 2025-26 had also increased by 14 percent in the last year i.e. financial year 2024-25.
| Financial Year (FY) | FDI inflows (in billion dollars) | in Indian rupees |
| FY 2025-26 | $94.50 billion | ₹89.17 lakh crore |
| FY 2024-25 | $81.04 billion | ₹76.47 lakh crore |
| FY 2023-24 | $71.28 billion | ₹67.26 lakh crore |
| FY 2022-23 | $71.00 billion | ₹67.00 lakh crore |
| FY 2021-22 | $83.57 billion | ₹78.86 lakh crore |
| FY 2020-21 | $81.97 billion | ₹77.35 lakh crore |
What benefits does the economy get from increasing FDI?
Increase in FDI in any country is considered a positive signal for its economy. When foreign companies invest in a country for a long time by buying a factory, office, production unit or stake in a local company, it affects employment, industry, stock market and even currency.
- Employment and production increases- With the arrival of FDI, new factories, industry and service sector projects start. This creates both direct and indirect jobs. Due to higher production, the economic activities of the country accelerate and helps in increasing the GDP.
- New technology and expertise comes- Foreign companies bring with them modern technology, better management systems and global level working systems. This increases the competitiveness of local companies and gives employees an opportunity to learn new skills. Many foreign companies produce in countries like India and sell their products in other markets of the world. This increases exports and the country gets more foreign exchange, which strengthens the forex reserve.
- There is a positive impact on the stock market- When FDI increases in a country, the confidence of investors in the economy of that country strengthens. This creates a positive environment in the stock market and there is a possibility of investment increasing. If foreign investment is made in a listed company, then there may be a rise in the shares of that company. However, FDI and FPI are different. FDI is a long-term investment, whereas FPI is a quick in-and-out investment in the stock market.
- The country’s currency may become stronger- For FDI, foreign companies bring foreign currency like dollar and convert it into local currency. This increases the availability of foreign currency in the market and increases the demand for local currency. As a result, the rupee in India may become stronger against the dollar or the pressure on it may reduce. With the entry of new companies and industries, the government gets more revenue in the form of corporate tax, GST and other taxes. The government can use this money on infrastructure and welfare schemes. The demand for local suppliers, transport, logistics and small industries to work with big foreign companies increases. The entire supply chain benefits from this.
RBI decision
RBI took these steps to bring foreign money
RBI believes that if foreign investment increases in India, it will strengthen the stock market, bond market and rupee. For this reason, the Central Bank has taken many such steps, which can make it easier and more attractive for foreign investors to invest money in India. The government has abolished long-term capital gains tax on government bonds for foreign institutional investors, which will increase their returns and enable them to invest more. Apart from this, foreign investors have been given more freedom to invest in government bonds of 15, 30 and 40 years, while many limitations related to investment in the debt market have also been removed.
At the same time, by increasing the investment limit in the Indian stock market for NRIs and OCI, NRIs have also been encouraged to invest more money. RBI has also decided to ease foreign loans of public sector companies and provide additional support to banks to raise FCNR (B) deposits, so that the flow of dollars in the country can increase. Also, exporters have been instructed to bring the money earned from abroad to India soon, so that the forex reserves can be strengthened and the rupee can be supported.
From what sources can money come in future?
Morgan Stanley estimates that the recent steps taken by the government and RBI to attract foreign investment can have a big impact. According to the brokerage firm, due to these measures, additional foreign capital of $ 40 billion to $ 60 billion can come into India in the next one year. This investment can come in the form of bond and stock market investments by foreign investors, NRI deposits and capital raised from abroad by Indian companies. Morgan Stanley believes that this will strengthen India’s forex reserves and increase the availability of dollars. The biggest benefit of this will be to the country’s Balance of Payments, in which the account of money coming and going out from abroad is kept. If enough dollars do not come into the country to meet imports and other foreign payments, there may be a deficit in the balance of payments. However, additional foreign capital inflows will help avert this potential loss and also reduce pressure on the rupee.
FDI has benefited in foreign countries also
- China- Increasing FDI strengthens the country’s economy. Another proof of this is that it has been beneficial even in a country like China. China has used FDI to modernize its manufacturing capacity. In the first five months of 2026 alone, FDI worth $12.8 billion has come into China’s manufacturing sector. An annual increase of 19.4% has been recorded in investment in high-tech industry. This foreign investment not only strengthened China’s industrial structure, but also helped in increasing energy efficiency and reducing carbon emissions in the manufacturing sector.
- vietnam- Investors like Samsung have created a model of ‘FDI based development’ for Vietnam. In 2024, about 98% of Vietnam’s total electronics exports were made by FDI companies, whose value was $126.5 billion. Samsung’s presence in Vietnam is so big that its total earnings in 2024 were about 13% of Vietnam’s GDP. Along with providing tax incentives for investment, Vietnam also invested heavily in infrastructure and skilled workforce, making the country an important part of the global supply chain.
- Ireland- Ireland’s economy is highly dependent on FDI and it is a major engine of its growth. About 20% of total private sector employment in Ireland comes directly or indirectly from FDI. In 2024, just three large American companies will contribute 46% of Ireland’s total corporate tax revenue. Ireland’s low corporate tax rate, highly educated young population and stable political environment have played a major role in attracting companies like Google, Apple and Meta. Due to this, Ireland has emerged as a global research and development hub.
Overall, if a foreign company invests 10 billion dollars in India, then those dollars will be converted into Indian rupees. This will increase the supply of dollars and increase the demand for rupee, which may strengthen the rupee. Besides, setting up of new industries can also have a positive impact on employment, production and stock market sentiment. However, increasing FDI alone does not strengthen the economy. Along with this, stable policies, good infrastructure and strong domestic demand are also necessary, so that the country’s economy can get the full benefit of investment.
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